Game Changer: Housing Market Forces Feds to Reassess

The Housing Market is pulling the economy down. Clearly the recent unveiling of the foreclosure debacle is a game changer in the Fed’s strategy to bring the economy back around. Any plan set for the last quarter of this year is null and void. The cost of unraveling the legal web is likely in the billions when it is all said and done. Ben Bernanke is no doubt under intense pressure to take action toward healing the economy. Although he has been suspiciously silent in the days leading up to the Foreclosure Freeze outbreak, he was quoted in the Wall Street Journal as saying he will take the measures necessary.

What about the rumors and speculation about Quantitative Easing? This is a monetary policy strategy that infuses money into the economy by purchasing securities. If the Federal Reserve buys bonds, banks will then have money from the sale of the bonds, which can then increase their ability/desire to lend to businesses and individuals. The domino effect will serve to speed up the economy. Unfortunately last year’s attempts to speed up the economy had little impact, so specialists are debating about whether or not quantitative easing will be enough at this point.

Nevertheless, the stock market is dancing to its own beat, seemingly not connected to the sluggish economy. In the meantime a lot will hinge on the two-day meeting held next week, , beginning November 3rd. Investors are not expecting the quantitative easing measures to have the traction needed to spur the economy. It will undoubtedly take more than throwing money at the problem, which is why next weeks Fed meeting is highly anticipated.

(See Interesting Article about the Currency War at Reuters)

K. Reilly
The Cohn-Reilly Report

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Ives said....
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Goldman: Polishing Off the Tarnish

After over 140 years in business, the prestigious investment bank that has long been the envy of many companies that have come and gone. Goldman continues to make all kinds of money irrespective of the scandal launched by the SEC investigation this past Spring, which precipitated a hearing on Capital Hill. This was to be only the beginning of a bad year for the gold plated maverick, at least where their reputation is concerned.

Not long after the SEC investigation ended in a $500 million settlement, a German bank; Landesbank Baden-Wurttemberg (LBBW), filed a suit claiming the firm knowingly sold $660 million of subprime mortgage-backed securities to a subsidiary of LBBW.
As to be expected, Goldman began to take action to buff off the tarnish derived from the unbecoming headlines of greed and deception. To this end the company formed a Business Standards committee, which is headed by Goldman’s chairman and vice chairman, Jerry Corrigan and Michael Evans, respectively. The Business Standards committee will review strategies to rebuild its once stellar reputation.

A series of surveys conducted by Goldman’s Business Standards Committee revealed that their clients believe that Goldman will make them money, but do not feel that they are trustworthy. If the Goldman committee approaches this “perception” issue the way it aggressively approaches its other business strategies, this will soon be a vague memory.

K. Reilly
The Cohn-Reilly Report


___________Comments

Kirsten said...

Goldman has been able to escape criticism for a century. I saw a documentary about GS that talked about how many of the good old boys from the firm went on to work for presidents, so they have been essentially "untouchable" until now. It makes you wonder if they have been doing transactions like this all along
OCTOBER 28, 2010 7:03 AM

Home Sweet Home?: Foreclosure Freeze Incites Serious Concern

In New York , three of the largest banks implemented a freeze on foreclosures amid concerns of illegitimate filings and erroneous documents. According to the Mortgage Bankers Association, NY has upwards of 80,000 mortgage loans in foreclosure. When JP Morgan Chase, Bank of America and GMAC prompted the freeze, it certainly brought much needed attention to the problem. Last week, it was made public, although not officially announced. Shortly thereafter many other banks followed suit. Apparently Attorney Generals from forty states are calling for a freeze, including New York Attorney General Andrew Cuomo. It is widely reported that Cuomo stipulated that the biggest mortgage lenders immediately halt all foreclosures.

Just as the foreclosure crisis began a new wave of court proceedings, a more pressing crisis unfolds. Not only does Cuomo plan to extend the freeze beyond the BofA, JPM Chase and GMAC, but he wants the halt to include evictions, and foreclosure sales.

This is probably good news to hundreds of thousands of home owners across the country who are struggling to stay in their homes, with little or no alternatives. The freeze is anticipated to pause the process for at least one year - enabling homeowners to go without the pressure of making mortgage payments. At least for a few homeowners, this may be just the extra time they need to get their finances back on track, or at the very least prepare an alternative living situation for their families.

Why the Drastic Freeze?
Apparently what is described as “faulty” paperwork, ranges from affidavits that do not stipulate who originated or owns the loan, to forged documents. This could mean that countless foreclosures may be overturned, which puts the many recent buyers of foreclosed properties on shaky grounds at the very least. Oh What tangled web we weave, to quote Sir Walter Scott. This essentially puts the last two years of foreclosed property sales in uncertain territory. Meanwhile, Back on Wall Street, this spells deep trouble for the big three, and many other mortgage underwriters. Although Wells Fargo and CitiGroup maintain that their documents are straight, that remains to be seen. It is hard to phathom the entire mortgage industry is pausing to resolve a nationwide scandal involving erroneous foreclosure documents, yet Wells Fargo and CitiBank mortgage documents are 100% clear of any errors.

Massive Costly Clean Up Ahead: As courts from state-to-state take on the daunting task of sifting through thousands of documents to verify the true mortgage holders, banks will have to expend costly legal support to prove their position. The costs on both sides of the fence will ultimately translate to higher interest rates for borrowers, and yet another nightmare for tax payers. It is difficult to determine how deep this crisis really is, but I imagine that this is just the tip of the iceberg.

K. Reilly
Cohn-Reilly Report

The Great Net Neutrality Debate

What is Net Neutrality ?
It is simply that governments and Internet service providers (ISPs) should not place any restrictions on the Internet’s content or means of accessing that content. Internet users should be in control of what content they view and what applications they use on the Internet. The Internet has operated according to this neutrality principle since its earliest days and the big broadband carriers like AT&T, Verizon and Comcast for example, should not be permitted to use their market power to discriminate against competing applications or content. The telephone companies mentioned are not permitted to tell consumers who they can call or what they can say; Net Neutrality proponents say the same telephone companies and other broadband carriers should not be allowed to use their market power to control activity online.However, Google and Verizon put forward a proposal to the Federal Communications Commission to essentially retain this net neutrality on the public Internet but to allow broadband operators and network operators to offer new services that might be discriminatory in terms of their price and speed. They are proposing that broadband providers can allocate bandwidth for such projects, working with other application or service providers as they see fit. They mentioned a few specific examples to help illustrate this, such as health care monitoring, advanced educational services, or new entertainment and gaming options. Basically, they proposed that they be permitted to create a two-tier system whereby network capacity could be sold to companies willing to pay for that service, in turn to provide a higher quality service to their users.

Verizon said it has no intention of selling bandwidth from the ‘public’ network, it wants to make certain it could provide dedicated bandwidth-based services to third parties if it wanted to. Verizon CEO, Ivan Seidenberg said: “Verizon is standing tall. We said we agree that there should be no paid prioritization of traffic over the public Internet. Google (and others) will continue to innovate, and we have to feed that cookie monster. All we have asked is that we are allowed to offer services like Fios.” Fios is a bundled home communications service Verizon offers that makes use of an end-to-end fibre optics network, offering Internet, telephone and television. Verizon cannot offer it over the Internet, given neutrality requirements, so it is offered as a network separate from the Internet.
Those in favor of net neutrality clearly don’t like this at all, as creating a two-tier system, even if it means legislating neutrality in one of the tiers, results in the fragmentation that they fear and still discriminates in their eyes. Given that Google’s unofficial motto is ‘Do no evil’, the backlash in some quarters has been brutal. On the ominous Friday the 13th of August, internet users from across the Bay Area converged outside Google’s offices in protest. The rally was organized by ColorofChange.org, Credo Action, MoveOn.org, Free Press and the Progressive Change Campaign Committee. SavetheInternet.com summarized the sentiment as follows: “Google previously had been a champion of policies such as Net Neutrality — the fundamental principle that keeps the Internet open and free from discrimination. Its decision to team up with Verizon, long an opponent of such policies, has drawn the ire of public interest advocates.”

What is the scorecard? Many Internet giants are proponents of net neutrality, and also supporters of the U.S. government’s involvement in regulating it to ensure the Internet stays ‘open’. The likes of Amazon, Craigslist, Google (kind of), Facebook, Sony, IAC, and Twitter fall into this camp. President Obama himself does too: “I am a strong supporter of net neutrality … What you've been seeing is some lobbying that says that the servers and the various portals through which you’re getting information over the Internet should be able to be gatekeepers and to charge different rates to different Web sites… And that I think destroys one of the best things about the Internet — which is that there is this incredible equality there … Facebook, MySpace, Google might not have been started if you had not had a level playing field for whoever’s got the best idea and I want to maintain that basic principal in how the Internet functions. "As president, I am going to make sure that that is the principle that my FCC commissioners are applying as we move forward.”

In the against-net-neutrality camp are a number of large hardware and telecommunications firms, who would invariably benefit from being allowed to redefine the way the Internet works as they control the means of accessing it. In addition, opponents also include heavyweights such as Bob Kahn (inventor of TCP — “net neutrality is a slogan that would freeze innovation in the core of the Internet”) and Professor David Farber (“The Internet needs a makeover”). Robert Pepper, senior managing director of global advanced technology policy believes all the pro-net neutrality hype, is just that, hype.

What does the law say?
The law that affects net neutrality differs globally. In the U.S. there is considerable debate around the topic, with the FCC being involved in trying to legislate around this area, and sometimes not by choice. For instance, a court case against Comcast was the first to seriously touch on this aspect, with Comcast was accused of unlawfully throttling BitTorrent traffic in a class action suit. Comcast settled for $16 million, with the FCC stating Comcast needed to comply with transparent network management practices.

Are we truly net neutral today and if so,
How long can it be sustained?
There are a number of central arguments used in opposition to any kind of net neutrality legislation. Firstly, that the ability to charge users/sites different rates for differing levels of access will provide the revenues to ISPs and other network operators necessary for them to recoup their investments in broadband networks. Verizon has said there is no current incentive for it to develop and deploy advanced, super-fast fibre optic networks if it can’t charge more for access to such networks. Verizon and a number
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C. Cohn
The Cohn-Reilly Report